The stock market closed out a remarkable 2009 with a loss as investors bet the improving economy will lead the government to pull back on its stimulus measures. But stocks still managed their best year since 2003 as they recovered from the financial crisis and recession.
Thursday's trading, which came on extremely light pre-holiday volume, was a fitting end to a tumultuous year. Stocks fell to 12-year lows by early March on investors' increasing pessimism, then rallied on growing signs of recovery in what turned out to be Wall Street's biggest comeback since the Great Depression. In the last day of the year, more signs of healing first pleased investors, then had them concerned about the economy's ability to thrive without government help.
The thin volume exaggerated the market's moves. The Dow Jones industrial average fell 120.46, or 1.1 percent, to 10,428.05. For the year, the Dow rose 1,651.66, or 18.8 percent.
The broader Standard & Poor's 500 index, considered by professionals to be the market's best barometer, fell 11.32, or 1 percent, to 1,115.10. The S&P ended the year with a gain of 211.85, or 23.5 percent.
Meanwhile, the Nasdaq composite index fell 22.13, or 1 percent, to 2,269.15. Powered by the recovery in high-tech stocks, the Nasdaq ended 2009 with a gain of 696.12, 43.9 percent.
The full-year stats are dwarfed by the indexes' recovery from the depths of last March, when they hit bottom. The Dow rose 3,881.00, or 59.3 percent from its March 9 close, while the S&P 500 rose 438.57, or 64.8 percent, and the Nasdaq regained 1,000.51, or 78.9 percent.
News that weekly unemployment claims fell to the lowest level since July 2008 gave stocks an initial blip Thursday, but the market gave back the gains as traders took some profits to close out their books.
Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said the light volume made it hard to read much into the day's move. However, he said the improved jobs figures stirred speculation that the government would be forced to withdraw supports for the economy such as low interest rates, which could fan inflation.
"How can they justify more stimulus if now you're in a growing economy," he said. "The question becomes can the U.S. economy really support itself without the assistance of the U.S. stimulus. My gut says no."
The Labor Department said new claims for unemployment benefits fell by 22,000 to a seasonally adjusted 432,000 last week. Analysts had expected claims would rise. The number of workers continuing to seek unemployment benefits fell by 57,000 to 4.9 million. Analysts predicted an increase.
Many investors believe that the stock market, which has had its best year since 2003, has seen the best of its gains for a while. So many of those working Thursday were moving money out of some stocks.
"Everyone is looking to put a ribbon on the year and wrap things up," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
Ablin said investors will be looking at upcoming corporate profit reports and jobs numbers to determine whether the market can hold its huge gains in 2010.
"I have a certain belief that the market can keep going, albeit at kind of a shallower pace, but that's going to require some help from corporate America and the economy itself," he said.
Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to an extremely light 2.23 billion shares, down from Wednesday's 2.37 billion.
Most bond prices fell, pushing yields higher. The yield on the benchmark 10-year Treasury note rose to 3.84 percent from 3.79 percent late Wednesday. The 10-year yield began 2009 at 2.22, a reflection of investors' high anxiety and need for the safety of government debt.
The dollar, whose decline this year has helped feed the rally in stocks, was mostly lower against other major currencies Thursday. Gold, which has soared in response to the falling dollar and investors' greater appetite for commodities in general, closed at $1,096.20 on the New York Mercantile Exchange after reaching a record high of $1,227.50 on Dec. 3.
Light, sweet crude rose 8 cents to settle at $79.36 per barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies fell 8.02, or 1.3 percent, to 625.39. It ended the year with a gain of 25.2 percent.
Overseas, Britain's FTSE 100 rose 0.3 percent, while France's CAC-40 rose less than 0.1 percent. Markets in Germany and Japan were closed.
The Dow Jones industrial average closed the week down 92.05, or 0.9 percent, at 10,428.05. The Standard & Poor's 500 index fell 11.38, or 1 percent, to 1,115.10. The Nasdaq composite index fell 16.54, or 0.7 percent, to 2,269.15.
The Russell 2000 index, which tracks the performance of small company stocks, fell 8.68, or 1.3 percent, for the week to 625.39.
The Dow Jones U.S. Total Stock Market Index _ which measures nearly all U.S.-based companies _ ended at 11,385.11, down 237.70, or 2 percent.